For businesses operating in Mexico, understanding one of the main federal taxes, which is Value Added Tax (VAT) is essential. While VAT is a standard consumption tax applied to most goods and services, certain entities may be eligible to claim refunds. This guide explains how VAT refunds work, who can apply, and provides practical tips for a smooth process.

What Is VAT (IVA) in Mexico?

In Mexico, the VAT rate is  16% for most goods and services, with a reduced rate of 8% in certain border regions. Businesses registered for VAT are required to charge the tax on their sales but can also deduct the VAT paid on purchases known as IVA acreditable.

When a company’s input VAT (paid on purchases) exceeds its output VAT (charged on sales), the excess may be refunded or carried forward to offset future VAT obligations. This is particularly relevant for exporters, manufacturers, or companies making large investments.

Who Can Apply for a VAT Refund?

Basically, most companies with VAT in favor can apply for a VAT refund as long as they comply with specific obligations and requirements. The main actor who apply include:

• Exporters

Companies exporting goods or services often pay VAT on inputs but don’t charge VAT on exports, since exports are zero-rated, therefore, this creates an excess VAT credit eligible for refund. It is important to take into account, exporters must maintain accurate records and proof of export transactions.

• Manufacturers and Capital-Intensive Businesses

Businesses investing in equipment, machinery, or raw materials may accumulate excess input VAT. Proper accounting and documentation are key to ensuring these credits can be refunded.

• Authorized Economic Operators (AEOs)

Companies certified as Authorized Economic Operators can  also benefit from streamlined VAT recovery procedures. These businesses must comply with Mexican tax and customs regulations and provide detailed documentation of transactions.

How to Apply for a VAT Refund

The VAT refund process is done through the  Servicio de Administración Tributaria (SAT) electronic portal. The main steps include:

1. File Monthly VAT Returns: Submit your VAT declaration (Declaración de IVA) electronically on time.
2. Submit a Refund Request: File a refund request, which can only be done after submitting the monthly VAT return that reflects the balance in favor.
3. Provide Documentation: Include invoices (CFDIs), proof of VAT payments, export documents (if applicable), and bank details for deposit.
4. Wait for SAT Review: SAT generally processes refund requests within 40 business days, though audits or requests for additional documentation can extend this.

Tips for a Smooth VAT Refund Process

Common Challenges

• Documentation errors: Missing or mismatched invoices can lead to delays.
• Non-compliance with deadlines: Late submissions may result in penalties or denial of refunds.
• Regulatory complexity: Mexican VAT regulations can be intricate, particularly for exports and large investments.

By preparing in advance and following best practices, companies can successfully recover VAT credits and improve cash flow.

VAT refunds in Mexico offer a valuable opportunity for businesses to reclaim taxes on purchases, especially for exporters and capital-intensive companies. Proper record-keeping, timely filings, and careful compliance with SAT requirements are essential for a smooth and successful refund process.

If you need help with the VAT refund process, contact Mexcentrix. We can advise and guide you step by step to maximize your refunds and ensure tax compliance in Mexico.

In today’s rapidly changing global economy, companies are rethinking where and how they manufacture. Rising costs in Asia, ongoing supply chain disruptions, and the need to be closer to key markets have accelerated the search for smarter production locations. Mexico has quickly emerged as a leading choice offering the perfect balance of affordable manufacturing labor rates, skilled labor, and strategic proximity to North America.

Mexico’s Labor market

Mexico offers a combination of competitive labor costs and highly skilled talent, with an important pool of young labor force.

According to official government data (DATA MEXICO, 2025), in the first quarter of 2025, the economically active population of México was 60.5M people. The workforce reached 59M people (40.7% women and 59.3% men) with an average monthly salary of $6k MX.

Labor Costs and Productivity

Even though Mexico has had an important increase on its minimum wage, as shown in the graph below, and an increase generally in manufacturing wages overall, it still remains highly competitive:

Mexican labor costs are significantly lower than those in the U.S. and Canada. While Mexico`s unskilled labor ranges from $4.00USD to $6.00USD per hour, compared to $17.00USD to 23.00USD per hour in United States.  Learn more about wages comparison with US in our past  blog.

Furthermore, when looking at China manufacturing wages vs Mexico, labor rates in Mexico are nowadays lower than China. The average minimum wage in China which varies from region to region, are now higher than in Mexico. In regards to mid- and higher-skilled manufacturing labor, it is considered Mexico’s manufacturing labor costs are 20% lower than in China.

Moreover, Mexico is now known for having a highly-skilled workforce and its labor force is also relatively young, while China’s is aging and declining due to its family planning policies.

While at the same time is important to consider Mexico’workforce maintains high productivity and quality standards, particularly in industries such as automotive, aerospace, electronics, and medical devices.

Regional Variations in Labor Rates

It’s important to note that labor costs in Mexico differ by region:

• Northern border states like Nuevo León, Baja California, and Chihuahua typically see higher wages due to demand and proximity to the U.S.
• Central regions often offer lower rates while still providing access to robust infrastructure, growing industrial clusters, and a skilled workforce.

This flexibility enables companies to choose locations that align with both their budget and operational needs.

Long-Term Outlook

Looking ahead, Mexico’s competitive labor environment is expected to remain a major driver of investment. While inflation, labor reforms, and currency fluctuations may influence costs, Mexico’s young workforce, strategic location, and deep integration with North American markets ensure its continued relevance as a top manufacturing destination.

Expanding operations in Mexico can be complex without the right local expertise. At Mexcentrix, we specialize in helping international companies establish, manage, and grow their manufacturing operations in Mexico. From our shelter services to HR Services, payroll management, and ongoing administrative support, our team ensures a smooth and cost-efficient setup.

Contact us for a free consultation on general labor costs in Mexico.

MEXICO – US TRADE RELATIONSHIP 

 U.S. trade with Mexico and China, has shifted in the last years; Mexico is currently the United States’ largest source of imports. According to Investopedia, the United States imported approximately $506 billion worth of goods from Mexico in 2024.

As part of the United States’ strategy, the imposed tariffs since the beginning of 2025 have included Mexico. Tariffs of around 25% on imports from Mexico were enacted under executive orders, targeting sectors such as automotive, agricultural products, and manufactured goods. Below is a summary of current tariffs applicable to Mexico:

However, despite these new measures, more than 84% of Mexico’s exports to the U.S. remain duty-free under the provisions of the USMCA. Only the remaining 16%—primarily non-USMCA goods such as certain auto components, steel, and aluminum—are subject to the 25% tariff.

CHINA – US TRADE RELATIONSHIP

As stated before, U.S trade with Mexico and China has changed in teh last years. In regards to China, since the start of the U.S.–China trade war, bilateral trade between the two countries has steadily declined. Many companies have responded by shifting production closer to the United States through nearshoring, with Mexico emerging as a primary destination. As a result, Mexico has now overtaken China as the United States’ top trading partner.

According to The Wall Street Journal, U.S. imports from China fell from 22% of total imports in 2018 to around 12% by early 2025. In value terms, imports dropped from $505 billion in 2018 to $439 billion in 2024—a $66 billion decline. This underscores the significant impact tariffs have had on the U.S.–China trade relationship, an effect that is expected to persist.

US – CHINA TARIFFS

On August 12, the United States and China agreed to extend their tariff truce for another 90 days, until November 10, 2025, postponing the implementation of additional duties on each other’s goods. This agreement temporarily eases tensions in a trade relationship that has been marked by escalating tariffs, retaliatory measures, and mounting uncertainty for businesses.

Futhermore, this extension prevents U.S. tariffs on Chinese products from surging to 145%, while Chinese tariffs on U.S. goods were set to reach 125%—levels that experts considered would have created a near-total trade embargo between the two economies, severely disrupting global supply chains, increasing consumer prices, and placing additional pressure on companies reliant on cross-Pacific trade. In addition, the potential breakdown of trade flows could have pushed businesses to accelerate diversification strategies, benefiting alternative manufacturing hubs like Mexico.

As of now, the US tariffs imposed will remain as follows:

IMPLICATIONS FOR CHINESE INVESTORS IN MEXICO

Mexico has been among the countries least affected by recent U.S. tariffs, largely thanks to the protections offered under the USMCA. Establishing operations in Mexico can be highly advantageous—particularly when the finished goods manufactured meet the USMCA rules of origin. Mexcentrix can assist by analyzing Bills of Materials (BOMs) to verify whether a product qualifies as USMCA-origin, potentially delivering significant tariff savings compared to the rates currently applied to Chinese products.

While USMCA provisions shield the majority of Mexican exports from new duties, certain sectors—most notably automotive—continue to face substantial challenges. Nevertheless, investor sentiment remains strong, with many projects moving forward. This is driven by the competitive advantages of USMCA protections and the deferred implementation of some tariff measures, even as uncertainty lingers for select foreign investors.

For all countries, balancing protectionist policies with the benefits of integrated supply chains will be key to sustaining growth, stability, and competitive advantage in the global market.

For companies navigating these new challenges, Mexcentrix Shelter Services can provide the expertise and operational support needed to establish manufacturing operations in Mexico efficiently. From compliance, cost optimization, risk reduction, and supply chain integration, Mexcentrix helps businesses adapt to changing trade conditions.

Contact us for more information on Mexico’s Shelter Services and the advantages of establishing opertions with Mexcentrix. 

On April 2, 2025, during “Liberation Day” President Trump announced a 10% base tariff on almost all imports and added steep “reciprocal” tariffs on more than 60 nations, scheduled to take effect on April 9. These were delayed 90 days to accommodate negotiations, then postponed again to August 1, and entering into effect as of today.

Court challenge: A federal court ruled in May that this action overstepped executive authority under the International Emergency Economic Powers Act (IEEPA), but enforcement was paused pending appeal, keeping the tariffs active.

What Is Changing on August 1, 2025

• Base tariff: 10% on most imports.
• Targeted increases:
  • European Union and Mexico: Originally 30%, now reduced to 15% across some goods following a July 27 agreement. However, steel from Mexico will be subject to a 50% tariff only for shipments exceeding the annual bilateral quota. Mexican products tht comply with the USMCA Rules of Origin are exempt of the 30% tariffs.
  • Canada: Up to 35%, implementation delayed to September 1, 2025.
  • Brazil: 50% on broad imports.
  • Copper products: 50% tariff now applies only to finished copper goods; raw copper is exempt.
  • Japan and South Korea: 25%, delayed to September 1, 2025.
  • India: Newly added – 25% tariff on key industrial goods and electronics.
  • 150+ other nations: Tariffs between 10–15% expected.

Additionally, revised enforcement letters were sent to 30 countries, clarifying the scope and timelines.

International Response and Repercussions

In response to the U.S. imposing tariffs, countries around the world have reacted in various ways:

Mexico denounced the tariffs as a violation of the USMCA and proposed retaliatory tariffs on U.S. goods like pork and cheese. However, it emphasized a preference for negotiation and suggested creating a joint diplomatic working group.

Canada, led by Prime Minister Carney, called the tariffs unjustified and reaffirmed its own 25% counter-tariffs on C$155 billion worth of U.S. goods. This sparked a “Buy Canadian” boycott as a form of protest.

China condemned the tariffs, imposing counter-tariffs on U.S. exports like soybeans and LNG, accusing the U.S. of economic coercion.

South Korea and Japan criticized the U.S. tariffs and called for negotiations. South Korea also introduced emergency support measures for its exporters to ease the impact.

Australia expressed disappointment, describing the tariffs as unfriendly, but chose not to retaliate. Instead, it sought an exemption through diplomatic dialogue.

Taiwan negotiated a 20% tariff rate and continues to push for better terms, citing its strategic economic alignment with the U.S.

Meanwhile, countries like Thailand, Cambodia, and Pakistan welcomed the new tariff structure, viewing it as an opportunity to grow their trade with the U.S.

Source: Financial Times, Reuters, Canadian Governmen, CNBC

Economic Impact

Prices are already rising across multiple sectors, particularly within the manufacturing industry. Companies are facing elevated input costs due to increased tariffs on critical materials like copper, steel, and electronics components.

Key sectors such as automotive, industrial machinery, and technology are experiencing significant disruptions in pricing and supply chains. Financial markets have shown a mixed response: equities remain steady, while the dollar has weakened due to trade-related uncertainties.

Summary Table 

August 1 represents more than just a policy deadline; it marks a significant turning point in the United States’ approach to global trade. Whether the tariffs result in new trade agreements or spark a broader trade conflict, their effects will be far-reaching.

For further information or inquiries, please contact us. Mexcentrix experts are available to assist with insights, USMCA compliance analysis and studies, and strategic guidance regarding the upcoming tariff changes.